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39 Cards in this Set
- Front
- Back
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Opportunity Cost
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how many x do I need to give up to produce 1st y? What you give up/ what you get- difference of x and y chart. the decrease in quantity produced of one good divided by the increase in quantity produced of another good
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"low hanging fruit principle"
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start picking at lowest-easily accessible
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absolute advantage
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comparing productivity- compares production per hour
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comparative advantage
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difference in opportunity cost- person can perform the activity at a lower opportunity cost than anyone else
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2 core principles of economics
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No-free-lunch principle
cost-benefit principle |
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No-free-lunch principle
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unlimited wants and limited resources- opportunity cost
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cost-benefit principle
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an individual should only take an action if and only if the EXTRA benefit from taking the action is at least as great as the EXTRA cost
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marginal activity
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benefit that arises from an increase in an activity
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marginal cost
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cost of an increase in an activity
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2 fallacies that lead to wrong conclusion
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fallacy of composition
Post Hoc Fallacy |
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fallacy of composition
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false statement that what is true of the parts is true of the whole or vice versa
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Post Hoc Fallacy
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the error of reasoning that a fist event causes a second event because the first occurred before the 2nd
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positive/ direct relationship
vs negative/ inverse relationship |
move in same direction
move in opposite direction |
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normative statement
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says what we think should be ex- you should get 7 hrs of sleep a night
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positive statement
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just describes the world around us- ex- people that get at least 7 hrs of sleep a night are usually more productive
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Comparative advantage comes from:
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natural resources
more available labor skills of workers |
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relative price
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price of one good in terms of another- Pticket= 1200 Pi-phone=300. Pticket in terms of I-phone= 4. Essentially same as Opportunity cost
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quantity demanded
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amount I plan to buy at any given price level
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Relationship b/n P and Qd is a ceteris paribus relationship- explain
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all other variables are kept constant
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Law of Demand
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other things constant an increase in the price of a good implies a lower quantity demand; a fall in the P of a good, implies a higher quantity demanded
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2 reasons that can explain the negative relationship b/n P and Qd?
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Substitution Effect- Price of a good goes up and is now relatively higher than before- buy more of a substitute and less of increased good- buy more pears if price of apple goes up
Income Effect- price of electricity goes up but income stays the same- necessary goods become more expensive relative to income- can't buy all same quantities as before- need to cut back on some expenses |
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when do shifts in demand oc)cur?
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happens when any other factor that influences buying plans (other than the P f the respective good) changes
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Which way does demand shift if it:
Increases Deacreses |
increase in demand- demand curve shift right
decrease in demand- demand curve shifts left |
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Factors that increase demand curve-
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1) change in preference
2) Taxes 3) prices of related goods 4) Income 5) Expected future Income 6) change in population 7) expected future prices- except for if Qd decreases (left) |
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Quantity Supplied
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the quantity a firm plans to produce and sell at a given price in a given period
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Law of Supply
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as Price increases, Qs increases if other things stay the same
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shifts in supply curve:
1)efficiency of using factors of production- technology 2)Prices of productive resources- labor, capital, raw materials 3)Prices of related goods (substitutes and compliments) |
1) shifts right
2) shifts left 3) shifts left for substitutes and right for compliments |
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substitutes in production:
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if they can be produced w/ the same resources
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Compliments in production:
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when you produce one, you automatically produce the other as well
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Equation for Price elasticity
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(change in Q/Q avg)/(change in P/ Pavg)
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results when demand is:
1) elastic 2) unit elastic 3) inelastic |
1) P down. Qd up. Revenue up
2) P down. Qd up. Revenue is constant 3) P down. Qd up. Revenue down |
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graph of extreme cases of elasticity of demand:
1) inelastic 2) elastic |
1) vertical
2) horizontal |
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Cross Price elasticity of demand- Dp of substitute or compliment
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(change in Q/ Q avg)/(change in price of substitute or compliment/ P avg of sub or comp)
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Income elasticity of demand- 3 levels
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elastic- greater than one
inelastic- b/n 1 and 0 inferior good- negative |
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Consumer Surplus
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the difference between a consumer's reservation price and the price actually paid- difference b/n what I'm willing to pay and what I actually pay- similar to net marginal benefit
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on graph where is consumer surplus?
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area above equilibrium price but under demand curve
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Producer Surplus
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price received by a supplier minus the sellers minimum reservation price
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Where is producer surplus on graph?
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area under equilibrium pt and above supply curve
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Tax- who bears the burden of tax
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Legislation (tax on buyers or tax on sellers) will not determine who bears the burden of tax
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